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Analysis: Patent litigation at crossroads

Fights over patents are becoming more pervasive and more consequential. Three examples: The US Supreme Court has agreed to hear the case of MercExchange, a small Virginia company, against auction giant eBay (the issue before the Court is whether lower courts must issue an injunction if they suspect a patent infringement, or whether they have some leeway); BlackBerry may be forced into ceasing operation in North America owing to an ongoing battle with NTP; and a Senate committee has just approved an extension of patent rights to pharmaceutical companies on general drugs in order to give an incentive to these companies to develop vaccines against bioterror weapons.

With patent-related issues coming more and more to the fore, it is good to see Cisco agreeing to settle its patent dispute with Toronto-based Wi-LAN. Not everyone is happy, however. Critics charge that the legal actions taken by MercExchange and NTP are examples of greedy patent trolls. NTP and MercExchange have little core business of their own but hold enforceable patents related to widespread technology used in products from larger, better known firms.

Wi-LAN's case is different as the company could hardly be described as a mere troll. Experts agree that the company's patent claims were substantial and that these claims would likely have been held up on appeal. Moreover, the company has promised "fairly and impartially" to license the technology to anyone who wants to use it. Wi-LAN was founded in 1992 and holds several patents related to OFDM and WiMax. In any event, more important for the wireless world are the patent-related questions of QUALCOMM's acquisition of Flarion Technologies, which gives QUALCOMM a major intellectual-property position in emerging wireless technologies.

Which brings us back to MercExchange vs. eBay. The hope here is that the Supreme Court would rule to allow judges more leeway in decisions involving complex patents. Such leeway would mean that even if the court suspects that patents on a small component of a larger system have been infringed, the court would not be mandated--as currently is the case--to issue a sweeping injunction causing major disruption to, or even a shut-down of, major companies and systems. Rather judges would be allowed to award damages relating only to specific, patented components of larger systems. The Supreme Court will go a long way toward introducing more sanity into US business jurisprudence if it were to give the lower courts the ability to exercise more discretion in finding for plaintiffs.

For more on Cisco's move:
- see Richard Martin's Unstrung report
For more on patent issues in the US:
- see Patti Waldmeir's Financial Times discussion (sub. req.)

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